-Caveat Lector-
December 10, 1999
Why Should the U.S. Even Care
It's About to Lose Panama Canal?
By CARLA ANNE ROBBINS
Staff Reporter of THE WALL STREET JOURNAL
PANAMA -- At noon on Dec. 31, the U.S. will finally give
up the Panama Canal. The deadline, negotiated by President
Jimmy Carter in 1977, has revived a bitter debate in the U.S.
over whether Panama is up to the job of running the canal --
and even whether potential enemies might try to capitalize on
America's retreat.
But the debate misses the point. Even if things go terribly
wrong, which is unlikely, the effect on the U.S. would be
minor. Sweeping changes in the American military, economy
and transportation systems over several decades have
transformed the canal from a strategic "choke-point" linking
the Atlantic and Pacific oceans to a commercial
convenience.
The military change is most striking. The last active-duty
U.S. aircraft carrier that could fit through the canal -- the
USS Oriskany -- was decommissioned in 1976. With its
"two-ocean Navy," the Pentagon says it didn't move a single
ship through the canal during the Kosovo War or, as far as
anyone can remember, the Gulf War.
Declining Share
In economic terms, the canal's boosters note that 12% of
U.S. sea-borne trade by weight passes through the waterway
each year. But almost all of the goods are heavy and
relatively low-cost -- grain, fertilizer, chemicals and lumber --
and make up a steadily declining share of the nation's
exports. Ever -- more of America's most valuable exports
travel by plane, or even over the phone lines.
"You're not going to send Windows 98 through the canal,"
says Rodolfo Sabonge, director of corporate planning and
marketing for the Panama Canal Commission. "The U.S. is
a lot more important to the canal than the canal is to the
U.S."
The largest American export moving through the canal is
grain -- 44% of U.S. corn exports and the same percentage
of soybeans in recent years. Even so, a new study by
economists at Texas A&M University and the U.S.
Department of Agriculture concluded that a complete
shutdown of the canal would mean only a 2% drop in U.S.
exports of the two crops -- representing a $303 million loss
in farmers' annual revenues. Growers, the study says, would
send their grain on rail cars to U.S. ports in the Pacific
Northwest or on bulk-carrier ships sailing around Africa's
Cape of Good Hope.
"In the very short run there would be some serious
problems," as shippers scramble for different routes, says
study author Stephen Fuller of Texas A&M. "But with time
the economic system would adjust."
America's Coming of Age
For Americans, the hardest part of the hand-over simply
may be psychological. When President Theodore Roosevelt
carved Panama off from Colombia in 1903 and then blasted
the canal through the jungles here, it was a declaration of
America's coming of age in the world. Nearly 100 years
later, some Americans still aren't ready to let go.
Witness the worry in Washington: Congressional
committees this year have held several hearings on an
alleged Chinese plot to seize the Panama Canal after a
multinational company in Hong Kong won the contract to
manage two of the four ports near the canal's entrances.
"U.S. naval ships will be at the mercy of Chinese-controlled
pilots and could even be denied passage through the canal,"
Senate Majority Leader Trent Lott of Mississippi warned.
Even as they denied any threat, White House officials were
so worried about the politics that President Clinton is
sending Mr. Carter and Secretary of State Madeleine
Albright in his place to next week's hand-over ceremonies in
Panama.
Legacy of World War II
Former U.S. Ambassador to Panama Ambler Moss marvels
at the passions still stirred by the canal. "People remember
what it was during World War II and the heroics of its
construction," he says. "But the American consumer would
not notice a penny's worth of difference if it were shut."
Panamanians, who stand to inherit about $3.5 billion in
property, bases, housing and infrastructure, are even more
ambivalent about the hand-over. While billboards across the
capital declare 2000 as the year of sovereignty, and an
enormous digital clock outside the canal administration
building ticks off the hours, minutes and seconds to the
hand-over, public opinion polls consistently show that 60%
or more of Panamanians don't want the Americans to leave.
"The Americans know how to run the canal. I'm not so sure
how our government will do," says Samuel de Gracia, a
salesman at a pricey men's store on Panama City's Via
Espana.
The continued allure and the sheer wonder of the canal are
all on display as the Jingu Maru, a Japanese auto carrier
returning from deliveries to Halifax, New York and
Baltimore, slowly navigates the 50-mile passage, traveling
north to south from Atlantic to Pacific.
At the start of the 10-hour transit, a three-step lock gently
raises the ship 85 feet above sea level so it can enter the
man-made lake that makes up more than half the canal. At
the end of the trip, another three steps gently lower the ship
85 feet so it can return to the sea. The technology behind the
canal is both simple and ingenious: Gravity fills the locks
with water while buoyancy and a 40-horsepower motor
open the several-hundred-ton gates. The shortcut means it
will take the Jingu Maru 24 days to get home to Japan, about
half the time of going around South America.
The canal's limits are also apparent here. While it is a
technological marvel, it is 85 years old. "If the Panamanians
don't maintain it, in five years it will be unusable," warns
the Jingu Maru's Capt. Takahashi Matsumoto. Dredges
constantly battle the effects of tropical rains and erosion,
while an in-house guild of workers struggle to keep
machinery, considered obsolete most everywhere else,
running 24 hours a day. On one lane of the Miraflores locks,
a massive 18-foot-diameter iron wheel, circa 1913, still
controls the center gates.
The canal's most serious limits are the locks. At 110 feet
wide by 1,000 feet long, they were designed for the U.S.
Navy's largest warship of the day. The Jingu Maru-94.5 feet
wide and 641.5 feet long-easily fits, although that doesn't
stop Capt. Matsumoto from anxiously pacing the bridge as
a canal pilot eases his ship into the compartments with less
than eight feet to spare on either side. An increasing number
of ships can't make the transit, including U.S. aircraft
carriers, oil supertankers and a new generation of
mega-container ships.
Irresistible Dream
Commercial dreams of an isthmian canal actually date back
to the 1820s. But the military drumbeat became irresistible
after the U.S. emerged from the 1898 Spanish-American
War with holdings from Cuba all the way to Hawaii and the
Philippines. The canal still played a relatively small role in
World War I's single-ocean conflict. But it was crucial in
World War II, particularly after Pearl Harbor. "Virtually, the
whole Pacific fleet that wins the war goes through the
canal," says naval historian Jon Sumida of the University of
Maryland. In those days, the U.S. had 65,000 troops
stationed in Panama to protect the waterway.
For all the current strategic anxiety, however, the U.S. Navy
began weaning itself from the canal as early as the
mid-1940s, when it began commissioning aircraft carriers
that were too large for the locks. More armor and, later, jet
airplanes required bigger ships. The decision to forgo the
canal was made much easier by the disappearance of any
serious threat to U.S. naval supremacy, says Mr. Sumida:
Japan was defeated and the Soviet surface navy was still in
its infancy.
The canal continued to get major use through the Korean
and Vietnam Wars and beyond. But with today's two-ocean
carrier-based Navy, the canal is "useful and convenient
and saves us some money," but is no longer strategically
essential, says John Hattendorf, professor of maritime
history at the U.S. Naval War College.
Dwindling Use
All told, about 40 U.S. Navy ships -- out of a fleet of
slightly more than 300 -- passed through the canal in the first
11 months of this year. An additional 12 Coast Guard and
sealift ships also used the canal. Almost all were destined
for the immediate region on drug interdiction missions,
participating in exercises or en route for maintenance.
With 13,000 commercial ships transiting last year --
two-thirds of their cargo either leaving from or destined for
the U.S. -- the canal is more of an economic player than a
military one. But there, too, changes have made it more
convenient than essential to the U.S. The canal assesses its
tolls based on ship cargo capacity rather than the value of
the goods transported, so it's hard to get a precise picture
of its share of overall U.S. trade. But economists agree that
the canal commission's estimate of 12% of U.S. waterborne
shipping by weight vastly overstates its importance. In 1998,
barely 30% of U.S. exports by value went by sea, down
from 40% a decade earlier. The waterway is far more
important to Latin American countries such as Ecuador,
Peru and Venezuela, which ship 40% or more of their
exports by weight through the canal.
Impact of a Closure
With coast-to-coast rail shipping, and multiple international
suppliers for most goods, U.S. exporters and importers
would be able to adapt to a canal shutdown, albeit with
some initial pain. The largest U.S. import, by weight,
traveling through the canal is petroleum. But even with
petroleum shipping, a closure would have little effect: The
U.S. Department of Energy estimates that only about 1% of
U.S. daily fuel consumption transits the canal.
Curiously, such calculations have had no impact on the
current political debate in the U.S. Even the treaties'
defenders have shied away from arguing the canal's
declining importance. "Our argument has always been that
the best way to protect the canal is for the Panamanians to
run it," says former Carter White House aide Robert Pastor,
who played a key role in negotiating the treaty.
Such logic paled after conservative groups alleged that the
Hong Kong company that will run ports on each end of the
canal has links to China's People's Liberation Army.
Hutchison Whampoa Ltd., among its many other
businesses, runs nearly 20 other ports, including the three
largest in the U.K.
The company actually won the contract in 1997. But recent
allegations of Chinese nuclear spying and the impending
hand-over have unleashed a spiral of speculation: that
Chinese pilots working for Hutchison Whampoa would take
over canal transits or even block passage of ships, and that
Chinese weapons and spies would be stationed along the
canal's right of way.
Discounting the Fears
U.S. intelligence and military officials scoff at such
fears. Hearing that a reporter has just visited Hutchison
Whampoa's offices at the Port of Balboa, Marine Brig. Gen.
Michael Aguilar, the last U.S. general in Panama, cracks:
"Did you see the Chinese guards at the gates?"
Gen. Aguilar says charges that Hutchison Whampoa will be
able to control the canal "are really out of context." Only
canal-employed pilots can guide ships through the canal.
What the port company can do, "if there is a backlog, is
send a pilot to get a ship into their port," he says. Other
U.S. officials point out that ships transiting the canal don't
have to enter either of Hutchison's facilities, and that
Taiwanese and American management companies run two
of the three ports on the canal's Atlantic side. If anything
were ever to go wrong, the U.S. retains treaty rights to
dispatch American troops to Panama to defend the canal's
neutrality.
At the Pacific Port of Balboa, there's little question
that Hutchison Whampoa values its new business here.
According to general manager Mike Booth, the company
plans to invest $220 million in the next few years developing
Balboa into a major hub for container shipping. Outside his
window, workers are already filling in land to increase the
port's docking space, while three huge new container cranes
hover over the landscape. Mr. Booth declines to comment
on the China allegations.
Mr. Booth expects only about a third of the ships entering
Balboa will actually transit the canal. He says the limits of
the canal's size, especially as container ships grow, may
actually add to Balboa's usefulness as ships off-load cargo
to smaller vessels able to transit the canal or pick up cargo
from smaller "feeder ships" moving up and down the Pacific
coast of Latin America. "What Panama is about is location,
location, location," he says. "There are a lot of options here
for shippers, whether they want to go through the canal or
stay in one ocean."
Is Panama Ready?
Panamanians are puzzled by the China charges -- noting that
their government, unlike the U.S., still has diplomatic
relations with Taiwan and not Beijing. The bigger question
for most is whether the Panamanian government is ready to
run the canal.
There's no doubt that the canal workers, more than 97% of
whom are Panamanian, know how to do their jobs:
Panamanians have been steadily assuming control of the
canal for more than a decade, with a Panamanian
administrator of the canal since 1990.
Whether the Panamanian government will give the canal the
tender care and feeding it needs is less certain. For the
first time in history the canal will be required to earn a
profit.
Administrator Alberto Aleman Zubieta rejects fears that the
government may try to turn the waterway into a "cash cow."
"As a company you pay a dividend to your stockholders.
Panama is our stockholder," he says.
The actual pot of money is small: Last year, the canal paid
Panama $134 million on total revenue of $760 million, which
includes tolls and the sale of water and electricity. This
year, Mr. Aleman expects the canal to pay $163 million. The
waterway's real payoff, he says, will come from all the
related businesses it will generate if Panama manages it
well.
--Elizabeth Crowley in Washington and Jose de Cordoba
in Mexico City contributed to this article.
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